IDBI Bank still a prisoner of bad loans as malaise deepens
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Fifty-three years after being set up as a development finance institution and 13 years after its rebirth as a bank, IDBI Bank Ltd today is a shadow of the important institution it once was. Bereft of capital to lend and facing a fast decaying loan book, the public sector lender is making losses hand over fist.
In its first quarter after having pulled into prompt corrective action by the Reserve Bank of India (RBI), IDBI Bank’s loan book showed no signs of healing. In fact, it only got worse.
Gross bad loan stock rose 12% sequentially and the ratio bloated to nearly 25%, the highest among banks.
Its loan book shrank 14% but the lender has hardly been able to bring down its exposure to large corporate borrowers. Its operating profit is down a massive 40% from a year ago.
On 9 May, RBI had invoked prompt corrective action under which a bunch of banks were asked to follow a pattern of regulatory restrictions to get their houses in order. IDBI Bank qualified as a lender in dire straits as it had breached threshold levels in two out of four parameters the regulator had listed.
The lender’s March quarter results had shown that its loan book was rapidly turning bad and its capital was eroding at a faster pace. The common equity Tier-I capital ratio dropped below the regulatory minimum.
Three months on, the public sector lender’s metrics have only worsened. One rupee out of every four it lent has turned bad and its provisions do not give any comfort either. Provision coverage ratio is just 52% as of 30 June.
Fresh slippages fell to Rs7,659 crore from a massive Rs11,531 crore in the previous quarter but were higher from a year ago. The lender still has an exposure of Rs19,000 crore or 10% of its loan book to 11 out of the 12 corporate borrowers RBI had asked banks to refer under the Insolvency and Bankruptcy Code.
In the meanwhile, the focus seems to be towards beefing up capital. IDBI Bank got a capital infusion of Rs394 crore from Life Insurance Corporation of India through a preferential allotment of shares and also sold the stake it held in Clearing Corp. of India Ltd (CCIL). The government infused Rs1,861 crore into the bank in the current quarter. After all this, the lender’s common equity Tier-I stands at 6.49%, up from 5.64% in March. The bank will offload more of its stake in CCIL and in Small Industries Development Bank of India in the coming months, it said.
The IDBI Bank stock has lost a massive 36% since coming under RBI’s corrective plan, which indicates that investors are pessimistic about the lender’s performance. It now trades at 0.46 times its estimated price-to-book value for fiscal year 2018. There’s little chance of any change in the outlook in the foreseeable future.